The Similarities Between America’s Economic Mess and Europe’s

The Economist has a pretty good article out about the similarities between our economic mess and Europe’s. They get it right on many issues, and completely wrong on others but its well worth reading.:

FOR the past three years America’s leaders have looked on Europe’s management of the euro crisis with barely disguised contempt. In the White House and on Capitol Hill there has been incredulity that Europe’s politicians could be so incompetent at handling an economic problem; so addicted to last-minute, short-term fixes; and so incapable of agreeing on a long-term strategy for the single currency.

Those criticisms were all valid, but now those who made them should take the planks from their own eyes. America’s economy may not be in as bad a state as Europe’s, but the failures of its politicians—epitomised by this week’s 11th-hour deal to avoid the calamity of the “fiscal cliff”—suggest that Washington’s pattern of dysfunction is disturbingly similar to the euro zone’s in three depressing ways.

The author lists many reasons why we are now similar to the European mess but the main one is the fact that even though we can see the train coming at us we are doing nothing to get out of the way. Nothing:

Rather than facing an imminent debt crisis, as many European countries do, it needs to deal with the huge long-term gap between tax revenue and spending promises, particularly on health care, while not squeezing the economy too much in the short term. But its politicians now show themselves similarly addicted to kicking the can down the road at the last minute.

…the temporary fix ignored America’s underlying fiscal problems. It did nothing to control the unsustainable path of “entitlement” spending on pensions and health care (the latter is on track to double as a share of GDP over the next 25 years); nothing to rationalise America’s hideously complex and distorting tax code, which includes more than $1 trillion of deductions; and virtually nothing to close America’s big structural budget deficit. (Putting up tax rates at the very top simply does not raise much money.)

The author writes that each sides extremists prevent any real negotiation but this is where they get it wrong. Republicans were willing to wheel and deal, making concessions on tax hike. But we wanted spending cuts in return. His Majesty would hear none of it. He wants tax hikes and only tax hikes. In fact he wants to increase spending. As Krauthammer called him, he is a “pre-Clintonian tax-and-spend Democrat”

Lastly The Economist writes that one major similiarity with Europe is the fact that none of our leaders are being honest:

The third parallel is that politicians have failed to be honest with voters. Just as Chancellor Angela Merkel and President François Hollande have avoided coming clean to the Germans and the French about what it will take to save the single currency, so neither Mr Obama nor the Republican leaders have been brave enough to tell Americans what it will really take to fix the fiscal mess. Democrats pretend that no changes are necessary to Medicare (health care for the elderly) or Social Security (pensions). Republican solutions always involve unspecified spending cuts, and they regard any tax rise as socialism. Each side prefers to denounce the other, reinforcing the very polarisation that is preventing progress.

Oh please. Republicans have been out every day telling Americans we are in a huge mess, and many of the Republican leaders have offered specific fixes and spending cuts. Such as Paul Ryan:

But the Democrats tell us that all we need to do is tax the rich and spend more.

Rick Santelli echoes the same thoughts when he pointed out that the Republicans are the only responsible voice in Washington right now because we are the only ones trying to call attention to the out of control government spending while the Democrats just want to spend, spend, and spend some more.

You couldn’t have summed it up better, Curt. I have become convinced that “Let it burn” is the only way we’re going to wake this country up. I can’t tell you how many times and ways I’ve tried to show the math to my lefty friends and they just can’t grasp the concept. These are pretty bright guys too, and if they can’t understand reality I don’t think most of America can either.

The only solution I can see to wake us up is Euro-level taxation so that we can see how much what we’re buying is costing us

Smorgasbord

Liberal1 (Objectivity)

I’m sure the parts of the Economist statements which Curt claims that “they get it wrong” are the ‘liberal ones'; and those parts which he applauds are the ‘conservative’ ones. That’s the real problem with the state of our system: Politics is too polarized to come together and solve the problem. If the far-right and the center-left (believe me, the far-left isn’t even in play) could close the gap enough, by coming to an understanding and appreciation of the others’ views (it’s called compromise)—instead of just denigrating them—then we could solve this problem.

johngalt

In regards to government finances, particularly the federal government, there are two points that determine whether or not the end of year budget is balanced, a surplus, or as we have seen for decades, a deficit. Those two points are;

-Revenue, derived from individual taxation and fees, and corporate, or business, taxation and fees.

AND

-Spending, made up of the long-term permanent spending, and the temporary, or discretionary, spending.

The recent talk about increasing the [absolute] revenue dollar amount, from year to year, has focused mainly on the tax policies and rates we lived under during Clinton’s presidency, and the tax policies and rates introduced during Bush’s presidency. The left would have you believe that, as an absolute, the Bush tax rates ended up “costing” the government certain dollar amounts, per year. The conservatives believe that those tax rates have not only paid for themselves, but also increased the revenue beyond what the previous rates would have garnered for the government.

As I discussed here; http://floppingaces.net/2012/12/21/a-comparison-of-tax-rates-reader-post/
during the periods of economic growth under both tax rate policies, the Bush tax rates increased federal revenue at 1.7%, for every 1% growth in GDP, while the tax rates attributed to Clinton only gained the government 1.3% increases, for every 1% growth in GDP. The disparity in the two tax rate policies is monumental, when compared to one another from a common starting point, say $2.5 Trillion(the approximate current revenue of the federal government), and extrapolated out over a ten year period of constant 3% GDP growth. $2.2 Trillion is the number. But that is from the starting point of today. To better see how the Bush tax rates compared to the rates under Clinton, we need to go back to 2003, the year the Bush tax rates took effect.

Starting revenue point – $1.782 Trillion

Assuming an average GDP growth under Bush, from 2003 to 2004 of 3%(it was actually higher), the federal revenue in 2007 should have been $2.174 Trillion(it was actually $2.568 Trillion). Under the Clinton tax rates, the revenue, assuming a constant 3% growth in GDP, would have been $2.076 Trillion.

Nearly a $100 Billion difference, in just 4 years. The net gains, over that four year period are roughly $250 Billion. The actual number is closer to $500 Billion, over that four year period, considering that GDP grew by more than 3% per year.

And, when added to the “cost” that the lefties claim the Bush tax cuts effected on federal revenue, of $130 Billion per year($1.3 Trillion over ten years), the Bush tax cuts actually gained, above and beyond what the lefties claim they did, $1 Trillion over that four year period.

So, the Bush tax cuts paid for themselves(and more). Given that many lefties tout the tax rate policies under Clinton as the “preferred” rates, I’d argue that revenue is not the problem of the federal government’s financial woes.

So it’s spending.

But the lefties will scream about the two “unfunded” wars we fought, and are still fighting. Estimated cost, to this point, of those two wars is $1.4 Trillion. ( http://costofwar.com/ )

The debt added, since 2003, to the federal government is roughly $9 Trillion. Take away the cost of the wars in Afghanistan and Iraq, and we are still left with $7.6 Trillion in debt.

$7.6 Trillion.

Is there any doubt that the actual problem in DC is that the politicians are spending way too much money? I don’t think there is.

And yet, the one area not addressed by the “emergency” sessions of Congress, nor by Obama, is the government spending. In my view, the revenue stream to the government will grow smaller because of the tax increases just instituted, and because nothing will be done about the spending, the deficits will grow much higher than the current $1-1.6 Trillion we have seen over the past four years, up to $2 trillion and beyond. Especially since Obama is talking about spending even more money.

This is completely unsustainable. Greece will look mild compared to what is in store for America.